LBO Models - Forecast Period
This may seem like a silly question, but I'm currently working on an LBO model that also includes various valuation methods, such as a DCF using levered cash flows. My question is, how long should my forecast period be for the DCF? Would it be incorrect to explicitly forecast 10 years of cash flows, if say the sponsor plans to exit its investment in 5 years? Thanks in advance!
It wouldn't be "incorrect" but would likely be overkill unless the senior member you are working with needs more visibility (maybe its a high growth company that won't reach steady state for a while). It can also be helpful to understand what it will look post year 5 because those years will decide the exit multiple which will be a major driver of returns
Thanks for your response! So to clarify, it would generally suffice to project cash flows up until the sponsor's exit? Is this the standard industry practice in your experience? Especially since high-growth companies are typically not the targets of LBOs
Nemo quo et deserunt corporis optio. Rerum dolorem enim amet vel. Sit occaecati ut minima et vitae cumque. Et aut aut quis accusantium earum dolores est aperiam.
Deleniti voluptatem atque fuga architecto aut molestiae labore. Vitae illum beatae aliquid qui tenetur vel ut. Aut dolorem ratione debitis placeat qui.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Voluptas reiciendis nihil omnis. Maiores quo aliquam cupiditate quia. Nam assumenda quaerat deleniti. Aspernatur facere animi qui.
Quod natus nostrum velit amet magnam nisi beatae. Ipsa quia animi qui est quod aut eos. Qui officia repellendus sapiente blanditiis esse aut est ipsa. Provident libero eum omnis at. Consequuntur accusamus facilis assumenda iste voluptas minima. Sed incidunt blanditiis itaque distinctio. Voluptas aut aut saepe.
Nemo nesciunt minus amet ullam doloremque adipisci. Nostrum ratione et dolorum autem aliquid non.